Dealing with Credit Card Debt

Using credit cards can have advantages and disadvantages. If you spend within your means and pay off your balance on time and in full each month, credit cards can serve as a safe and convenient substitute for cash—with the added bonus that they can help you establish and maintain a solid credit history. But if you use them to purchase items you couldn't otherwise afford—or max out your cards to cover routine monthly expenses—credit cards can quickly compound your debt.

Few money-management strategies pay off as well as, or with less risk than, paying off all high interest debt you may have. Let's say you have a $3,000 balance on a credit card that charges 18% APR and requires a minimum payment of 2.5% each month. Assuming you charge nothing else, it will take you 263 months—nearly 22 years—to pay off your debt. In addition, the total amount you pay for that $3,000 charge will be $4,115.44—an amount that you could have saved or invested. If you can't pay off credit card debt immediately, work out a structured plan to pay off the balance as quickly as possible. You'll save money in the long run.